During a virtual discussion hosted by the Heritage Foundation Friday morning, Martin Lee, founding chairman of the Hong Kong Democratic Party and popularly known as Hong Kong’s “Father of Democracy,” as well as Dennis Kwok, a member of Hong Kong’s Legislative Council and a democratic activist called it a “nightmare”.

“What is happening in Hong Kong is truly heartbreaking,” Kwok said, after news that China’s parliament will consider a bill that would enable Chinese authorities to limit opposition party activity in Hong Kong, including protests or engaging in discussions with international allies, without the measure being considered by Hong Kong’s lawmaking body whatsoever. “The worst nightmare is happening before our eyes.”

While the specific details of the legislation are not publicly known, Lee said that any move to bypass Hong Kong’s legislative council would be a breach of the ”joint declaration” made between the United Kingdom and China, when it handed over the former British colony in 1997 that ensured Hong Kong would operate under capitalist and democratic principles until at least 2047.

“The world will now see that the joint declaration is being ignored,” Lee said. “Will Beijing be allowed to get away with it? If it can break an international agreement, registered at the United Nations and get away with it, they will be encouraged to break other agreements.”

The move comes amid rapidly growing tensions between the U.S. and China over culpability for the spread of the COVID-19 pandemic, as well as over international trade, cross-border investment and other issues.

U.S. Secretary of State Mike Pompeo issued a statement Friday saying, “The United States strongly urges Beijing to reconsider its disastrous proposal, abide by its international obligations, and respect Hong Kong’s high degree of autonomy, democratic institutions and civil liberties, which are key to preserving its special status under U.S. law.”

Hong Kong’s special trade status was granted by the U.S. in 1992 and enables the region to avoid certain tariffs, export restrictions and to enjoy free exchange between the Hong Kong dollar USDHKD, +0.03% and U.S. dollar DXY, +0.42%, all of which have helped enable it to remain a major center of international finance.

Last year, Congress passed legislation that would require the Secretary of State to report annually to Congress on Hong Kong’s autonomy and whether the U.S. should maintain its unique bilateral relations. Revoking the special status could hit Hong Kong with the same large tariffs on exports to the U.S. that mainland China faces, while striking a blow to international confidence in the Hong Kong dollar, as well as the region’s rule of law.

Even as China’s economy and financial markets have developed, Beijing still relies on Hong Kong as a source of foreign capital, with 54% of all foreign direct investment in China coming through Hong Kong in 2018, while mainland companies rely on operations there to take advantage of its rule of law, regulatory environment and professional services, according to Tianlei Huang of the Peterson Institute for International Economics.

Kwok argued that revoking special status would be a “nuclear option” because “once you use it everyone will get hurt and it will be hard to build Hong Kong back up again.” But he still advised the U.S. to consider it because “a lot of people [in Hong Kong] are angry and actively call for the U.S. to cancel [the special status] to punish Beijing for acting the way they have acted.”

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